Daniel Kahneman - Decision Making and Happiness
Daniel Kahneman (1934- )
Israeli-born American psychologist who:
a) won the 2002 Noble Prize in Economics for his work on decision making (see below)
b) is an expert on happiness - what he calls hedonic psychology which is closely related to Martin
Seligman’s (pictured right below) positive psychology.
Who did he work
Amos Tversky (1937-96), also an Israeli-American psychologist .
Kahneman and Tversky (pictured right below):
- worked on decision making and prospect theory (see point 2
- founded behavioural economics which says people make irrational decisions.
His most famous book is...
Thinking, Fast and
Slow (2011) - see the Business Books section for a detailed analysis.
What does he teach us?
1. People are irrational and intuitive
Most of our thinking is based on:
Fast thinking based on:
- insufficient information (which often leads to inaccurate
We don’t use:
Slow (logical and analytical) thinking that weighs up the pro’s and
con’s of a decision with all relevant information.
2. Prospect theory
a) people are loss averse
Avoiding losses is more important than making gains.
So political reforms will favour potential losers, because they will fight harder to protect their
status quo position (see next point) than potential winners.
b) people evaluate results
(according to “reference points” like future aims and the status quo)
If you do better than the reference point it’s a gain e.g. exceeding your aims and status
quo position including:
c) people are risk averse towards gains
(but take risks to minimize losses)
d) people give undue importance to highly unlikely but extreme events
(like winning the lottery).
3. How to be happy
a) friends and family
- share your life with someone you can trust
- mutual trust is vital to happiness.
In America the ideal income is $75,000, above which happiness doesn’t increase much.
c) life satisfaction
- the long-term achievement of worthwhile aims set early in life (e.g. aged 18).
This differs from emotional happiness (how you feel about life like optimism or
d) worthwhile and realistic aims
If they aren’t realistic (like being a pop singer), you won’t be happy.
e) do better than your peers
Favourable comparisons make you smile!
f) live life to the full and don’t live in the past
Memories are only important if they affect you now or in the future.
Key quote on decision making
System 1 is indeed the origin of much that we do wrong but it is also the origin of most of what we do
Key quotes on happiness
We should think of living, not only of remembering.
Everything is worse if you’re poor
Key quote on psychology and learning
The test of learning psychology is whether your understanding of situations you encounter has changed, not
whether you have learned a new fact.